Atlanta is the epicenter of a national surge in rental-application fraud where nearly half of rental applications contain fraudulent information. The applicants are targeting high end apartments throughout the city. Why is Atlanta the epicenter of the fraud? What does this mean for real estate prices? Is the same fraud happening in other cities?
Application fraud for apartments is pervasive in Atlanta
Social media is spreading the word that Atlanta, Georgia is flush with empty high-end units. Influencers on TikTok say renters can boost their chances of getting approved by fudging financial information on their applications.
Some promoters charge hundreds of dollars for fake rental-application packages, which they say include doctored financial documents, fake social-security numbers and false employment letters.
Greystar, the country’s largest apartment landlord, said that up to half of its rental applications are fraudulent in some Atlanta buildings. Other landlords are also noticing a sharp rise in Atlanta applicants falsifying income or other personal information.
Why is Atlanta the epicenter of rental fraud?
Atlanta, like most major cities, has seen a huge increase in the number of luxury apartment buildings with minimal new construction on affordable units. This has led to a huge mismatch in the market with much more demand for lower priced units yet no inventory while on the flip side luxury apartments are in less demand but yet there is more inventory. This trend is playing out in every major city as it is not profitable to build lower priced units in most places due to land costs, labor, materials, etc.. which has led to where we are today.
What impact does rental fraud have on apartment owners?
Rental fraud enables less credit worthy borrowers to rent apartments that they might not be able to afford. This will ultimately cost apartment owners thousands to evict, fix, and release the apartment. Furthermore, it destroys the cash flow for the apartment owner which ultimately will lead to higher rents and even tighter guidelines for prospective tenants.
Will anyone be prosecuted for apartment fraud?
Doubtful anyone will prosecute for misstating information on an apartment application. Furthermore, Apartment owners will be unlikely to sue tenants that lie on their application as there is no chance in recovery. Unfortunately the cycle will continue with a game of cat and mouse will continue.
Are other cities experiencing the same fraud as Atlanta?
Nationally, nearly three-quarters of apartment owners reported an average 40% increase in rental-application and -payment fraud last year compared with 2023, according to a National Multifamily Housing Council survey. South Florida, Washington, D.C., and Houston have also seen a sharp rise in this activity. I’m certain this is happening in every single city with luxury apartments as they all have similar dynamics to Atlanta with more luxury apartments than lower priced units.
What happens to smaller property owners because of fraudulent applications?
We can think of the multifamily sector like the banking sector. It is very difficult for small players to survive as they do not have the systems, software, or capital to survive the market changes. For example, large apartment owners are now spending big bucks on software to try and fight back against apartment fraud. Smaller owners do not have the money or resources to replicate the large apartment owners. Furthermore fraud on a smaller owner is much harder than on a huge apartment owner just due to the law of averages.
Fraud along with huge increases in regulation in the multifamily sector will lead to continued widespread consolidation ultimately eliminating many of the smaller apartment owners.
Real Estate Fraud is not victimless
Although many committing the fraud justify that they are “sticking it to a big corporation” at the end of the day everyone pays. Rents are increased or kept higher than they should be to compensate for huge losses due to fraud and apartment owners bottom lines are impacted which flows through to shareholders and the general economy.
Furthermore, the increased fraud is one more nail in the coffin of a small property owner which will ultimately lead to even less competition and higher rents for everyone. Unfortunately, there is not a good solution other than for apartment owners to spend big to prevent the issue going forward. Rest assured at the end of the day, the fraud is not victimless and ultimately everyone will pay the price.
Additional Reading/Resources
https://www.wsj.com/real-estate/renter-fraud-apartment-applications-bb3c9c75?mod=hp_lead_pos11
https://www.fairviewlending.com/georgia-hard-money-loans/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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